Questions raised about Standard Chartered allegations

Reuters, WASHINGTON and LONDON

Cowboy local regulator or the exposer of lax federal bureaucrats?

That’s the key question being asked about New York banking regulator Benjamin Lawsky after his explosive charge that London’s Standard Chartered bank abetted US$250 billion of money-laundering transactions with Iran. Standard Chartered won help on Wednesday from Britain’s central bank governor, who portrayed Lawsky as marching to his own tune, and marching out of step with federal regulators in Washington.

“One regulator, but not the others, has gone public while the investigation is still going on,” Bank of England Governor Mervyn King said at a news conference in London.

The US Treasury Department, in a letter responding to a request for clarification from British authorities, said it takes sanctions violations seriously.

In London, King drew unfavorable comparisons between the handling of this case and other US actions against British banks, such as the investigation of interest rate manipulation at Barclays PLC.

In the Barclays case, he said, all regulators in Britain and the US produced coordinated reports after the investigation was complete.

“I think all the UK authorities would ask is that the various regulatory bodies that are investigating the particular case try to work together and refrain from making too many public statements until the investigation is completed,” King said.

King said he did not share the view held by some that the move in New York was part of a concerted US effort to undermine London as a financial center, following the Barclays probe and a US Senate panel report that criticized HSBC Holdings’ efforts to police suspect transactions.

One British lawmaker, however, said the affair was part of a “political onslaught” in the US against British banks.

“I think it’s a concerted effort that’s been organized at the top of the US government. I think this is Washington trying to win a commercial battle to have trading from London shifted to New York,” said John Mann, a member of parliament’s finance committee, who also called for a parliamentary inquiry.

Standard Chartered lost over a quarter of its market value in 24 hours after Lawsky, the head of New York State’s Department of Financial Services, threatened on Monday to cancel Standard Chartered’s state banking license, which is critical for dealing in dollars. Lawsky called Standard Chartered a “rogue institution” for breaking US sanctions against Iran.

Standard Chartered shares bounced 7.1 percent on Wednesday to close in London at ￡13.15, up from a three-year low of ￡10.92 hit on Tuesday. They were still down 18 percent since the regulator’s threat, which chief executive Peters Sands said was “disproportionate” and came as a “complete surprise.”

The bank’s top executives, some like Sands scrambling back from summer vacations, worked on a defense strategy. So far, the executives have contested the regulator’s figures and his interpretation of the law, but they have given little further detail. The bank says only a tiny proportion of its Iran-related deals — less than US$14 million — was questionable under US sanctions rules.

Sands, in his first public comments since the crisis arose, offered no major new information on the allegations, which the bank has been reviewing with authorities for the past two years.

“[We] fundamentally reject the overall picture and believe there are no grounds for them to take this action,” he told reporters.